President Obama is asking the powerful oil and gas industry to put its money where its mouth is — literally.
For some time now the oil industry has said that when Washington tackles corporate-tax reform, it would be willing to reexamine the billions of dollars the sector receives in tax breaks every year.
“We’re ready to do our part,” American Petroleum Institute President and CEO Jack Gerard said in a conference call in November urging Congress not to repeal oil and gas tax breaks as part of the congressional super committee’s efforts to reduce the federal deficit. “When Congress is prepared to address comprehensive tax reform, our member companies are prepared to be constructive partners in finding solutions that will treat all businesses fairly while providing opportunity to remain competitive.”
Congress may not quite be ready to unveil a tax-reform plan, but the Obama administration on Wednesday unveiled its plan, which includes repealing some of the tax breaks now extended to oil and gas companies.
Gerard told National Journal that Obama’s plan includes the same recycled policies he has proposed in the past and continues to pick winners and losers in the energy space. He referenced the administration’s call to specifically repeal oil and gas tax breaks and make permanent tax credits for the wind industry.
“That’s not tax reform, that’s tax discrimination,” Gerard said. “What he should have [proposed] is if you produce energy, here’s what the tax code looks like, here’s the cost you recover, here’s the cost you don’t recover, and everyone is playing by the same rule.” Gerard continued: “If he’ll make his tax proposals industry-neutral so the impact on other industries is the same as it is on the oil and gas industry, that would encourage us and make us feel more comfortable to sit down and begin to work this out.”
API also immediately blasted out an e-mail advisory for a press teleconference on Thursday, in which Gerard will try to shift the focus from the administration’s tax-reform plan back to high gasoline prices, an economic reality that politicians can little control but for which they take much heat. He said that by repealing tax breaks for the industry, it will subsequently raise production costs for companies, and eventually make gas prices higher.
“If you raise the cost of energy production in the United States you’re going to discourage the investment at a time we need it the most,” Gerard said. All of Obama’s budget requests for the past three years have proposed eliminating energy-industry tax breaks that the administration estimates to be worth nearly $40 billion over 10 years. While the new corporate tax-reform plan is just as unlikely to become law as the administration’s past budget proposals, it ups the ante politically because numerous oil and gas executives have said they would only reexamine their own tax breaks as part of a broader effort.
The president is now giving them that chance. But API isn't biting yet. And the stalemate over oil and gas tax breaks is likely to continue.